In contrast to private-sector predictions, the
International Monetary Fund (IMF) forecasts the United Arab Emirates (UAE) will
experience a 2.3% financial deficit.
The UAE’s Government budget deficit has been
anticipated due to the decrease of oil prices. It is the first time since 2009
that the UAE will experience a shortfall in the Government Budget. During the
previous year, oil cost approximately $100 per
barrel whereas this year, oil has slumped to approximately $60 per barrel.
The IMF predicts that the UAE’s Gross Domestic Product (GDP) will drop
by 2.3% in comparison to the 5% surplus it experienced in 2014. The IMF also
forecasted that the UAE’s non-oil based sector economic growth rate will increase
by 3.4% while inflation rate is also expected to rise by 3.8% due to increased
rents regardless of the fact residential prices have stabilised in Dubai. A
complete IMF report will be released during the following month which will
include all of its forecasts.
Additionally, according to IMF the UAE’s economic growth rate will
increase by 3% during 2015 marking a drop of 1.6% in comparison to the previous
year’s growth rate which was recorded at 4.6%. On a bright note, the IMF
commended the UAE government on continuing to invest on infrastructure as well
as implementing innovative policies which eased the negative impact of
decreased oil prices.
Numerous economic predictors within the private sector have forecasted
that the UAE will experience a higher shortfall than the 2.3% predicted by the
IMF. Even though the IMF has made its predictions based on the UAE’s
expenditure plans, it does not mean that its predictions are more precise than
those of the private-sector due to the fact the IMF does not take into
consideration future oil prices.
Abu Dhabi Commercial Bank predicts the UAE will experience a 4% fiscal
deficit during this year. The forecasted deficit is viewed as modest in
comparison to the country’s large financial reserves. According to the bank,
due to the government’s policies and reforms implemented during the past few
years the UAE’s non-oil GDP rate will remain healthy.
Additionally, the government’s focus on housing, transportation,
tourism, healthcare as well as education and energy projects in Abu Dhabi and
Dubai will support and sustain the UAE’s economy
Although the IMF commended the UAE government for its innovative
policies and budget spending it has made some suggestions so as to help
regulate the deficit. According to the IMF, the UAE government must sustain
investment spending, ease off on subsidies, regulate the public wage bill,
increase non-oil profits and minimise transfers towards state-linked entities.
Most of the aforementioned measures are currently being endorsed. The
IMF also calls that the financial community of the UAE and the government to be
more transparent especially concerning state-linked entities as well as state
debts.
According to an Abu Dhabi-based investment company, the National
Investor, the UAE’s spending patterns and reforms rely on whether the price of
oil will even out or fluctuate. In the past, the UAE government was practical
and sensible as it restricted government spending at times when oil prices
dropped. In contrast, the UAE government has not followed the same tactic this
time and carries on spending. The reason remains unclear as to whether it is
due t the fact the state believes oil prices will pick up or whether due to the
fact it has implemented new reform policies.
Currently, the UAE government has large amounts of reserves to manage
the drop of oil prices as well as to deal with the small shortfall in its
budget. However, if oil prices remain low, the government will have to make
long-term plans and introduce new policies as a precaution.
The IMF reflects the same views and will include
details concerning the UAE’s spending in its report in the following month.
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